BBB3633 | Malaysian EconomicsPrepared by Dr Khairul Anuar

L5: Knowledge-Based Economy

www.notes638.wordpress.com

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Content

1. Introduction

2. Rationale for K-based Economy

3. K-based Economy: An Overview

4. k-based Economy in Malaysia

5. K-Economy Strategies

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1. Introduction

• Migrating into the borderless world and interconnected global spheres, economic activities have evolved into a whole new era of innovative information application.

• Emphasis is placed on intensifying the usage of information and knowledge in delivering the thrusts of the Malaysian economy policies.

• When facing a knowledge-based economy (k-economy), many challenges and obstacles in terms of competition and infrastructure are expected.

• They are the main barriers against providing greater accessibility and feasibility of knowledge usage to produce higher outcomes and at the same time increase productivity.

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2. Rationale for K-based Economy

• The k-based economy provides the platform to sustain rapid economic growth and enhance international competitiveness

• Malaysia depended on capital investment to boost economic growth until the mid-1990s. Subsequently, a strategy to change from an input-driven to a productivity-driven mode was initiated due to the declining marginal productivity of capital.

• It advocates profit, productivity and state-of-the-art technology as the driving force behind a business success

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2. Rationale for K-based Economy

• To survive in the innovative economy era today, a nation has to have a clear strategy to respond promptly to changes, sustain continuous growth and ensure management of international trade.

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• Knowledge has become an important producer of wealth in societies and organizations. Knowledge is the global public goods.

• Once knowledge is discovered and made public, there is zero marginal cost in adding more users.

• In addition certain extent, the creators or the inventors of knowledge are protected via instruments such as trade secrets protection and patents, copyrights, and trademarks. 5

2. Rationale for K-based Economy

• Organisations are building more intangible assets than tangible

assets in this new era.

• The intangible assets are referred to as intellectual capital.

• Businesses are more concerned with the transfer of a company's

tacit knowledge that is embedded in the staff than the observable

assets, capital and land

• All these can be the basis for the company's competitive advantage.

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2. Rationale for K-based Economy

• Looking at the macro level, there are various challenges coming

down the line and waiting to strike any economy hard. It is

imperative to be aware of the challenges that can be categorised

into three main aspects.

the first aspect of challenges is the changes in the rules of

competition;

the second aspect is competitiveness which depends on

knowledge instead of factor input, and

the third challenge ahead is building capability to contend with

foreign competitors.

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3. K-based Economy: An Overview

• The k-economy plays an important role in the economic structural

evolution, from agro- production-based economy (p-economy) to

industrial-technology-based economy.

• In the P-economy, supply chain management was important for cash

flow, and managing the value chain is the key to keep business

costs low.

• The “new economy” that has emerged from this information age is k-

based economy which is truly global.

• There are no boundaries for any businesses and they can be

located anywhere around the globe.

• The success of the k-based economy relies on the effectiveness of

creating and utilizing knowledge. It enhances international

competitiveness, strengthens the nation's innovation that leads to

the creation of higher technology, and pushes the development of

new products into the markets.

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3. K-based Economy: An Overview

• Country's competitiveness is dominated by knowledge instead of merely

factor input.

• The 5W plus 1H strategy (i.e., know-what, know-who, know-where, know-

when, know-why and know-how) and competencies are being developed

interactively.

• But it is difficult to measure tacit knowledge as it comprises know-how and

know-who.

• Knowledge transmission from experiences is complementary to education,

training and development.

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3. K-based Economy: An Overview

• To put it into practice, organization must make knowledge more

personal and delicate, and find ways to keep knowledge useful,

observable, measurable and reward able.

• With the k-based economy as the platform for countries to engage in

economic activities, there is the need for countries to become more

receptive to know-how.

• In this, it is to increase skills and creativity to enhance

competitiveness and stay ahead in the race for sustainability of

wealth

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3. K-based Economy: An Overview

• The k-based economy enables new entrants (lower-cost developing countries) to

compete against established producers.

• Furthermore, the unique concepts of the k-based economy have enabled

industrialized countries to increase their share in high-technology industries and stay

ahead in the more dynamic economies.

• This can also enable the developing countries to keep up with the developed

countries in terms of knowledge input of production for value-added creations. It is

always an issue that inventions in knowledge-based societies and online economy go

hand-in-hand via force of electronic digital speed and the explosive utilisation of

knowledge.

• The advent of internet as an instrument of e-business helps cost-cutting that is very

much vital to conduct e-transactions. Falling costs of communications hardware and

software create fertile environment for innovations in businesses of all sizes. 11

4. K-based Economy in Malaysia

• There are different phases of growth in Malaysia. In the

1960s, it was labour-driven economy with greater emphasis on

primary commodities.

1970s, greater attention was given to assembly-type

manufacturing

1980s, the focus was on medium technology manufacturing and

services sector before productivity-driven growth was

emphasized in 1995.

Since the millennium, the centre of attention has been a

knowledge-driven and technology-driven economy 12

4. K-based Economy in Malaysia

• Malaysia has established the MSC, an entity to assist the

transformation of Malaysia from a p-economy into a k-economy, as

well as an initiative that drives towards the creation of a k-based and

information-rich society.

• The k-economy would strengthen Malaysia's capability to innovate,

design and create indigenous technology and thus would provide

the foundation for endogenously-driven growth.

• The launching of the National IT Agenda (NITA) and MSC marked

the foundation for k-economy in the mid 1990s.

• The objective of NITA is to promote the utilisation and development

of IT and covers areas like e-commerce. e-business, e-learning, e-

public services, e-community and e-sovereignty.

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5. K-Economy Strategies loyment

• There is constant talk about new enterprises not only venturing into capital, but also translating the ideas of managerial know-how into businesses.

• Knowledge may be expensive to generate but there is little cost involved in diffusion as knowledge provides increasing returns when it is widely used.

• The focus of success is on creativity and wealth creation.

• Those proficient in the economies of information and knowledge, and the know-how to produce knowledge and information would become business magnates of the era.

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5. K-Economy Strategies

• To develop the k-economy, concerted efforts must be made to put the building blocks in place.

• The k-based economy research for Malaysia was initiated at the National Information Technology Council (NITC) and Malaysian Institute of Microelectronic Systems (MIMOS) Berhad in October 1998 and it has focused on strengthening critical elements to support the economy.

• The major thrust of the k-economy development plan for Malaysia are set out in the Third Outline Perspective Plan (OPP3) for 2001 – 2010.

• They are summarised in the following slides. 15

5. K-Economy Strategies

1. Building knowledge manpower and worker productivity

One of the key successes in the k-economy is to increase the

capacity of trained labour force.

This is through a comprehensive review of the education and

training system, and the introduction of a system for life-long

learning and brain-gain programme.

Malaysia needs to focus on improving and upgrading the existing

education system and shift the orientation from controlling

workers to shaping an innovative and creative environment.

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5. K-Economy Strategies

2. The role of human resource management (HRM)

HRM should be able to boost workforce capability, through

appropriate selection, training and rotation; help design high

performance teams and help restore managerial focus on value

creation, besides focusing on profitability.

Those risk-taking and staff with initiative should be rewarded,

refrain from punishing staff who make mistakes - instead we

should be more supportive.

Mutually respectful leader and hands-off bureaucratic mode of

management or acts as consultants and policy advisors to top

managers should be put-into practice.

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5. K-Economy Strategies

3. Human Resource Development (HRD)

The consequences of economic liberalization of HRD are as follows:

Although productivity has increased and unemployment has declined,

income inequality has been worsening generally under the free market

regime. Inequality takes place when there is less government

intervention in the economy system.

Equity may be effectively redistributed through regulation. For instance,

land reforms have been successfully emulated and land ownership

given to balance income disparity. There are other subsidies such as

housing, education and training that have helped to train skilled labour

and raised competitiveness within the economies by narrowing wage

differences and reducing inequality.

Technological development is necessary for the sustainability of growth.

Technology is necessary to upgrade the skills of the labour force and

hence, it improves innovative systems and the standard of living as a

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5. K-Economy Strategies

4. Intensifying Science and Technology (S&T) and R&D

• The key success in the k-economy is to enhance organizational learning

and training in S&T.

• Hence, accelerating the process of R&D, intensifying R&D initiatives

towards strengthening the national innovation system, as well as providing

sufficient subsidies and loans for science education in both the government

and private sectors are vital.

• S&T is the core competency area in the future of our nation. Despite the

percentage of R&D expenditure to GDP by public sector and the number of

scientists and engineers per million populations has been increasing,

Malaysia remained ranked low relative to other countries.

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5. K-Economy Strategies

5. Restructuring the financial system

Enhance operational efficiency by providing appropriate types of

financing for knowledge activities, making available the tools for

macroeconomic management and withstanding the challenges

associated with k-economy.

6. Innovation in products and services and continuous infrastructure

improvement

Realising the increasing competitive edge in the global marketplace

both locally and internationally, increasing knowledge-content in

agriculture, manufacturing and service sectors is crucial.

The development of infrastructure must be accelerated to facilitate the

development of k-based economy

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5. K-Economy Strategies

7. Preparing the private and public sector for change

There is a greater urgency to nurture creativity to boost k-economy in the

corporate culture, while simultaneously identifying the opportunities that

generate innovation.

Omitting old-fashioned hierarchical styles of management is vital in order to

become more proficient in the acquisition, utilisation, dissemination and

management of knowledge.

8. Fostering ethical utilisation of knowledge

Success in the k-economy requires creativity and higher-order cognitive

skills.

Most of the innovation and creativity is supported by the foundation of basic

knowledge.

In the long-run, those skills that find ways to foster creativity will have more

success in the competition within the k-economy.

Thus, bridging the digital divide among income, ethnic and age groups, and

urban-rural communities across regions becomes crucial. 21

6. Recommendations K-Economy

• To possess a k-based economy, the government needs to create an

environment for a fair, competitive marketplace which is unfettered by

government regulations or incentives which would be counterproductive to

this aim.

• Malaysia has to focus on key areas to strive for developed nation status.

Among those areas are:

1. Human capital

The need to prepare the people for the change on a massive scale that

allows them to develop to their maximum via a dynamic and innovative

education system.

Attract and retain knowledge workers in the k-economy using several

strategies, namely environment strategies, relationship strategies, support

strategies, growth strategies and compensation strategies.

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6. Recommendations K-Economy

2. Transforming assets

Organisations have to transform assets into innovative, creative and

competitive businesses.

Firms have to create higher value-added jobs, both within the country and

abroad, and make their domestic base stronger.

Form a testing ground for innovations in technology. To achieve

competitiveness, the government should promote technology-intensive

industries and accelerate industrialization.

Always be technologically proficient - able to adapt, innovate and invest.

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6. Recommendations K-Economy

3. Safety creation

It is important for the people to feel confident of embracing changes. There

should be policies to guide them through the period of transition if they have

to relocate. In this context, e-government might` take place, vis-a-vis how

the government intensifies communication and works with the governed.

4. Developing natural resources

Malaysia is rich with energy and natural resources.

As China and India are providing enormous markets, they are expected to

have a high demand for commodities, agriculture and food products from

other countries. The prices will be driven upwards following huge demand

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6. Recommendations K-Economy

5. Reduce ethnic constraints, but enhance religious and cultural values and

thirst for knowledge to face competition globally.

6. Private sector

Bring the private sector into the nucleus of a knowledge-economy that has

tremendous potential, in terms of per capita expenditure on ICT. Build

strong or powerful national brands, as well as opportunities to leverage off

brand identities for export purposes.

7. Diversified and balanced economy

Developing a matured and broad-based industrial sector, modem

agricultural sector, efficient and productive service sector, as well as

developing modem services sector. Adapt quickly to changing patterns of

supply, demand and competition.

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